AUD CPA Exam Final Reviewed with
actual answers.
what auditor should consider for firm's client acceptance & continuance policies ANS -ability to meet
reporting deadlines, ability to staff engagements, independence, & integrity of client mgmt (do we want
to be associated with them)
before accepting audit engagement ANS -determine if financial reporting framework is acceptable &
obtain agreement of mgmt that it acknowledges and understands responsibilities
management responsibilities ANS -preparation & fair presentation of financial statements; design,
implementation, & maintenance of internal controls; provide auditor with access to all relevant info,
addtl info auditor may request, & unrestricted access to people necessary to obtain evidence
inquiries should be made of predecessor auditor regarding ANS -integrity of mgmt, mgmt
disagreements with predecessor auditor, reason for change in auditors, any
fraud/noncompliance/internal control matters & commmunication of those to mgmt/audit
committee/those charged with governance
during audit of new client, auditor should obtain sufficient appropriate evidence about ANS -if opening
balances contain misstatements & if all accounting policies are consistently applied
new auditor should review predecessor's documentation of ANS -planning, risk assessment procedures,
further audit procedures, results, matters of continuing accounting & audit significance
engagement letter ANS -contract between client & auditor to reduce risk of misinterpretation
for recurring audits, auditor should assess ANS -if circumstances requires terms of engagement to be
revised
written engagement letter should include ANS -objective of audit, mgmt responsibilities, auditor
responsibilities (gather sufficient appropriate audit evidence, express an opinion), limitations of
,engagement (not providing total assurance, not guarantee f/s free of misstatements), identification of
applicable financial reporting framework, reference to expected form & content of report to be issued
audit documentation ANS -written record of work performed, evidence obtained, & conclusion reached
qualities of audit documentation ANS -divided into permanent & current files, supports auditor's
report/opinion, aids in training & conduct/supervision of audit, provides record of accumulated
evidence, indicates that accounting records reconcile to financial statement, contains enough info that
an experienced auditor with no prior knowledge of client could understand the work performed
audit documentation assembly & retention requirements ANS -issuers: documentation must be
assembled within 45 days of audit report release & must be kept for 7 years
non-issuers: documentation must be assembled within 60 days of audit report release & must be kept
for 5 years
audit documentation is confidential & can only be disclosed without client permission if ANS -part of
quality review program, subpoenaed for it, or part of investigation by AICPA/state CPA society/state
statute
those charged with governance ANS -people who bear responsibility to oversee obligations & direction
of entity (includes board of directors & audit committee)
audit committee ANS -members of the board of directors (usually independent/outside directors) who
aren't employees or part of mgmt & don't have material financial interests in the company
audit committee functions ANS -establish control environment, select & appoint independent auditor,
review quality of auditor's work, respond to auditor recommendations, help resolve disagreements in
accounting treatment of material items, & serve as bridge between board of directors & auditor
communication responsibilities of auditor in financial statement audit ANS -not required to (but may)
search for deficiencies less sever than material weaknesses or express opinion on internal control; , in
writing, both significant deficiencies & material weaknesses to mgmt/governance within 60 days of
report release date; in writing, previously communicated significant deficiencies/material weaknesses
that haven't been corrected; other deficiencies identified (in writing or orally); can't report absence of
significant deficiencies but can report absence of material weaknesses
, independence is required for ANS -audits & attest services (including reviews); NOT required for
compilations, consulting, tax work
cases where independence is impaired ANS -1. CPA has direct financial interest or indirect material
interest in client
2. audit fees remain unpaid for more than a year
3. CPA has mgmt position with client or is employee; spouse can be employee as long as its not in mgmt
or financial reporting role
4. CPA makes hiring decisions for client
5. litigation, unless it is for immaterial amount unrelated to the audit
cases where independence is NOT impaired ANS -1. with bank client by full insured checking account
(under $250K FDIC limit amount)
2. fully collateralized car loan
all engagements must be performed with ANS -objectivity, integrity, & free of conflict of interests
general standards that apply to all engagements ANS -professional competence, due professional care,
adequate planning & supervision, sufficient relevant data
contingent fees rule ANS -contingent fees not permitted for audits, reviews, most tax work; fine for
compilations if disclosing lack of independence
acts discreditable rule ANS -retaining client records after they demand return, discrimination in
employment, failure to follow audit standards, making false/misleading journal entries, failure to
file/remit taxes timely, making false claims about abilities, disclosing confidential info without client
consent
threats to compliance ANS -1. advocacy-promote client interests
2. adverse interest-opposition to client interests
3. familiarity-too sympathetic to client position
actual answers.
what auditor should consider for firm's client acceptance & continuance policies ANS -ability to meet
reporting deadlines, ability to staff engagements, independence, & integrity of client mgmt (do we want
to be associated with them)
before accepting audit engagement ANS -determine if financial reporting framework is acceptable &
obtain agreement of mgmt that it acknowledges and understands responsibilities
management responsibilities ANS -preparation & fair presentation of financial statements; design,
implementation, & maintenance of internal controls; provide auditor with access to all relevant info,
addtl info auditor may request, & unrestricted access to people necessary to obtain evidence
inquiries should be made of predecessor auditor regarding ANS -integrity of mgmt, mgmt
disagreements with predecessor auditor, reason for change in auditors, any
fraud/noncompliance/internal control matters & commmunication of those to mgmt/audit
committee/those charged with governance
during audit of new client, auditor should obtain sufficient appropriate evidence about ANS -if opening
balances contain misstatements & if all accounting policies are consistently applied
new auditor should review predecessor's documentation of ANS -planning, risk assessment procedures,
further audit procedures, results, matters of continuing accounting & audit significance
engagement letter ANS -contract between client & auditor to reduce risk of misinterpretation
for recurring audits, auditor should assess ANS -if circumstances requires terms of engagement to be
revised
written engagement letter should include ANS -objective of audit, mgmt responsibilities, auditor
responsibilities (gather sufficient appropriate audit evidence, express an opinion), limitations of
,engagement (not providing total assurance, not guarantee f/s free of misstatements), identification of
applicable financial reporting framework, reference to expected form & content of report to be issued
audit documentation ANS -written record of work performed, evidence obtained, & conclusion reached
qualities of audit documentation ANS -divided into permanent & current files, supports auditor's
report/opinion, aids in training & conduct/supervision of audit, provides record of accumulated
evidence, indicates that accounting records reconcile to financial statement, contains enough info that
an experienced auditor with no prior knowledge of client could understand the work performed
audit documentation assembly & retention requirements ANS -issuers: documentation must be
assembled within 45 days of audit report release & must be kept for 7 years
non-issuers: documentation must be assembled within 60 days of audit report release & must be kept
for 5 years
audit documentation is confidential & can only be disclosed without client permission if ANS -part of
quality review program, subpoenaed for it, or part of investigation by AICPA/state CPA society/state
statute
those charged with governance ANS -people who bear responsibility to oversee obligations & direction
of entity (includes board of directors & audit committee)
audit committee ANS -members of the board of directors (usually independent/outside directors) who
aren't employees or part of mgmt & don't have material financial interests in the company
audit committee functions ANS -establish control environment, select & appoint independent auditor,
review quality of auditor's work, respond to auditor recommendations, help resolve disagreements in
accounting treatment of material items, & serve as bridge between board of directors & auditor
communication responsibilities of auditor in financial statement audit ANS -not required to (but may)
search for deficiencies less sever than material weaknesses or express opinion on internal control; , in
writing, both significant deficiencies & material weaknesses to mgmt/governance within 60 days of
report release date; in writing, previously communicated significant deficiencies/material weaknesses
that haven't been corrected; other deficiencies identified (in writing or orally); can't report absence of
significant deficiencies but can report absence of material weaknesses
, independence is required for ANS -audits & attest services (including reviews); NOT required for
compilations, consulting, tax work
cases where independence is impaired ANS -1. CPA has direct financial interest or indirect material
interest in client
2. audit fees remain unpaid for more than a year
3. CPA has mgmt position with client or is employee; spouse can be employee as long as its not in mgmt
or financial reporting role
4. CPA makes hiring decisions for client
5. litigation, unless it is for immaterial amount unrelated to the audit
cases where independence is NOT impaired ANS -1. with bank client by full insured checking account
(under $250K FDIC limit amount)
2. fully collateralized car loan
all engagements must be performed with ANS -objectivity, integrity, & free of conflict of interests
general standards that apply to all engagements ANS -professional competence, due professional care,
adequate planning & supervision, sufficient relevant data
contingent fees rule ANS -contingent fees not permitted for audits, reviews, most tax work; fine for
compilations if disclosing lack of independence
acts discreditable rule ANS -retaining client records after they demand return, discrimination in
employment, failure to follow audit standards, making false/misleading journal entries, failure to
file/remit taxes timely, making false claims about abilities, disclosing confidential info without client
consent
threats to compliance ANS -1. advocacy-promote client interests
2. adverse interest-opposition to client interests
3. familiarity-too sympathetic to client position
